City of Charleston v. Public Service Com'n of West Virginia

• Decision Date: 09 June 1995
• Docket Number: No. 94-2285,94-2285
• Citation: 57 F.3d 385
• Parties: CITY OF CHARLESTON; The City of South Charleston, Plaintiffs-Appellees, v. PUBLIC SERVICE COMMISSION OF WEST VIRGINIA; Boyce Griffith, Chairman; Otis D. Casto, Commissioner; Richard D. Frum, Commissioner, Defendants-Appellants.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 385

57 F.3d 385

63 USLW 2790

CITY OF CHARLESTON; The City of South Charleston Plaintiffs-Appellees, v. PUBLIC SERVICE COMMISSION OF WEST VIRGINIA; Boyce Griffith Chairman; Otis D. Casto, Commissioner; Richard D. Frum, Commissioner, Defendants-Appellants.

No. 94-2285.

United States Court of Appeals, Fourth Circuit.

Argued March 8, 1995.

Decided June 9, 1995.

ARGUED: Richard Edward Hitt, Charleston, WV, for appellants. James David Kauffelt, Kauffelt & Kauffelt, Charleston, WV, for appellees. ON BRIEF: Cathy Culhane, Charleston, WV, for appellants. T.D. Kauffelt, Kauffelt & Kauffelt, Charleston, WV, for appellees. Carolyn C. Atkinson, City Atty., City of South Charleston, South Charleston, WV, for appellees.

Before HALL and DIANA GRIBBON MOTZ, Circuit Judges, and WILLIAMS, United States District Judge for the District of Maryland, sitting by designation.

Reversed and remanded by published opinion. Judge DIANA GRIBBON MOTZ wrote the opinion, in which Judge HALL and Judge WILLIAMS joined.

OPINION

DIANA GRIBBON MOTZ, Circuit Judge:

The district court held that a 1990 West Virginia statute and related orders of the state's Public Service Commission (PSC) impaired contractual obligations contained in sewer bond contracts between two West Virginia cities and their bondholders in violation of the Contract Clause of the United States Constitution, ¹ and so granted summary judgment to the cities. Because the statute and orders do not constitute a substantial impairment of any contractual right, we reverse and remand.

I.

The West Virginia Legislature has allotted certain authority for the operation of sewer systems to municipalities, see W.Va.Code Sec. 16-13-1 et seq., and certain authority for their operation to the PSC. See W.Va.Code Sec. 24-1-1 et seq. The boundaries of the division of that authority have long been a point of contention. See, e.g., City of Benwood v. Public Service Comm'n, 75 W.Va. 127, 83 S.E. 295 (1914). There is no dispute, however, that the cities of Charleston and South Charleston (collectively, the cities) have the authority to issue sewer revenue bonds. See W.Va.Code. Sec. 16-13-16. Conversely, the cities acknowledge that because they own and operate sewage collection and treatment systems that are public utilities, they are subject to the jurisdiction of the PSC and that the PSC is "empowered by Chapter 24 of the West Virginia Code to regulate the rates, charges, practices and procedures of public utilities."

The present controversy arises from five separate bond series issued by the cities and the contractual obligations contained in the respective bond contracts. Charleston has two outstanding sewer revenue bond issues relevant to this action, both issued in 1989. South Charleston has three relevant outstanding bond issues, issued in 1956, 1961, and 1986, respectively. The bond contracts provide that all rates and charges, if not paid when due, shall be "a lien on the premises served."

Each of the bonds was issued pursuant to a separate bond ordinance. Both Charleston bond ordinances and the 1986 South Charleston bond ordinance provide:

The City will ... take all steps, actions, and proceedings for the enforcement and collection of such fees ... to the full extent permitted or authorized by the laws of the State, and the rules and regulations of the PSC. All such rates and charges, if not paid when due, shall become a lien on the premises served by the System.

The City further covenants and agrees that it will, to the full extent permitted by law, and the rules and regulations promulgated by the PSC, discontinue and shut off the services and facilities of the System....

These ordinances further state that they "shall be deemed to be and shall constitute a contract between the city and such Registered Owners," that the relevant bond "is authorized and issued under and in full compliance with the Constitution and the statutes of the State of West Virginia, including particularly Article 13 of Chapter 16 of the Code of West Virginia," and that "[a]ll such covenants, agreements and provisions shall be irrevocable, except as provided herein, as long as any of the Bonds or the interest thereon is Outstanding and unpaid." Although the entire text of the bond ordinances and bond contracts is not included in the record, the portions that are included indicate (and the parties do not assert to the contrary) that the remaining two South Charleston bond ordinances and contracts contain similar, although not identical, language.

In addition, the cities maintain that Sec. 16-13-16 of the West Virginia Code "form[ed] a part of these contracts between the Cities and their bondholders, as if written verbatim into the bonds themselves." That statute requires, inter alia, that a municipality issuing sewer revenue bonds establish rates "to be paid by the owner" and that those charges "if not paid when due shall constitute a lien upon the premises served." W.Va.Code Sec. 16-13-16. The cities contend that the bond issues "constitute binding contractual obligations to the various purchasers of the bonds" that the cities will use the remedies outlined in the state and local legislation, including the power to impose liens, to collect from delinquent users and so protect the investments of the bond purchasers relating thereto.

In 1989, the West Virginia Legislature amended Sec. 8-18-23 of the West Virginia Code to allow sewer utilities, like the cities, to require utilities providing water service to terminate that service to a user who has failed to pay sewer bills. The statute further provided that "the owner, user, and property shall be held liable at law until such time as all such [sewer] rates and charges are fully paid." A year later, the Legislature again amended Sec. 8-18-23 to provide:

[A]n owner of real property may not be held liable for the delinquent rates or charges for services or facilities of a tenant, nor shall any lien attach to real property for the reason of delinquent rates or charges for services or facilities of a tenant of such real property unless the owner has contracted directly with the municipality to purchase such services or facilities.

(Emphasis added). In other words, after 1990, an owner could not be held personally liable and a lien could not be placed on his property to recover sewer charges owed by delinquent former tenants.

Thus, in the original bond contracts, the cities were empowered, "to the extent permitted" by "the laws of the state and rules and regulations of the PSC," to collect delinquent sewer charges by imposing a lien on "premises served," including those that were leased, even if only the tenant (and not the landlord) was delinquent. However, in the bond contracts, the cities were not empowered to insist that water service provided by a utility other than themselves be shut off if a user was delinquent in paying its sewer bill to the cities. The effect of the 1989 amendment to Sec. 8-18-23 was to grant cities this additional remedy--the right to insist upon the termination of water service to any delinquent sewer user. The effect of the 1990 amendment was to remove the lien remedy as to rental property, i.e., no liens could be placed on an owner's property because a tenant failed to pay a bill.

In March, 1992, the PSC issued two orders ruling that Charleston could not require the termination of water service to landlords because their previous tenants failed to pay sewer charges. See Copley v. Charleston Sanitary Board, PSC Case No. 90-518-S-C; Moore, et al. v. Charleston Sanitary Board, PSC Case No. 90-120-S-C, et al. The PSC reasoned that Sec. 8-18-23, as amended, allowed termination of water service to delinquent sewer service users, but did not permit termination of water service to a rental property because prior tenants had not paid for sewer service.

In February, 1993, the cities initiated this action against the PSC and its individual members (collectively, the PSC), asserting that the 1990 amendment and the PSC's orders violated their rights under the Contract Clause. Accordingly, the cities asked the district court to declare that the 1990 amendment and the PSC orders constituted an unconstitutional "impairment of the contracts between the Cities and their sewer revenue bond holders." The district court granted summary judgment to the cities, finding that the amended statute constituted a "substantial impairment of the contractual relationship" between the cities and their bondholders, which was not justified by any "significant and legitimate public purpose."

II.

Initially, we consider the standing of the cities to make the claims pursued here. The cities assert that as a result of the 1990 amendment and the PSC's orders they "are suffering increasing delinquent accounts .... [which] directly and adversely affect the good financial condition of the cities' sanitary funds" and that "the contractual right granted" to the bond purchasers, which the cities "are contractually bound to protect and vindicate," is "directly and substantially impaired."

Very early in our history, the Supreme Court held that a municipal corporation cannot assert that its "creator" state has violated the Contract Clause by impairing a contract between the municipal corporation and the state which involves governmental powers and functions. See, e.g., City of Covington v. Kentucky, 173 U.S. 231, 19 S.Ct. 383, 43 L.Ed. 679 (1899); Williamson v. New Jersey, 130 U.S. 189, 9 S.Ct. 453, 32 L.Ed. 915 (1889); County Court of Cape Girardeau County v. United States, 118 U.S. 68, 6 S.Ct. 951, 30 L.Ed. 73 (1886); Town of East Hartford v. Hartford Bridge Co., 51 U.S. (10 How.) 511, 13 L.Ed. 518 (1850); Trustees of Dartmouth College v. Woodward, 17 U.S. (4 Wheat.) 518, 4 L.Ed. 629 (1819).

In other cases, however, the Court suggested that if a city is performing a "private and proprietary," rather than "public and governmental," function, it might be able to...